Warner Deal Could Put An Executive In Limbo

By DAVID D. KIRKPATRICK

Published: October 13, 2003

Time Warner is inching closer to a deal to sell control of its Warner Music division to EMI for about $1 billion in cash, but the proposed arrangement is testing the loyalties of the division's chairman, Roger Ames.

For Time Warner, the sale would reduce its exposure to the troubled music business and bolster its balance sheet. But for Mr. Ames, it is an abrupt reversal of fortune.

Just three weeks ago, he was within a few pen strokes of completing months of off-again-on-again talks to combine Warner Music with BMG, potentially forming a new industry giant under his direction as its chief executive, friends of Mr. Ames and senior executives at both companies said.

But while Mr. Ames was negotiating with BMG, top executives of Time Warner were holding discussions without him about a different merger altogether, his friends and colleagues said last week. In the days before Time Warner's board meeting on Sept. 18 , Mr. Ames learned that the company was proceeding with an alternative plan to sell the division to EMI, an arrangement that would probably result in Mr. Ames's leaving the company, several of his friends and associates said last week.

The switch has left Mr. Ames feeling angry and betrayed, his friends say. His future has become bound up in a larger debate across the entertainment industry about when or if the music business will ever hit bottom. Some argue that the industry will eventually recover from its troubles with online piracy and falling CD sales, so companies should hold on instead of cashing out. But other executives from outside the music business worry that despite a number of recent industry gambits -- lawsuits against online file sharers, new online music stores, lower prices on some CD's -- there is still no end in sight to the slump.

On a more personal level, Mr. Ames, 54, a former talent scout from Trinidad, has become mired in a soap opera of bad blood and shifting allegiances. His future after a potential merger with EMI is complicated by his past clashes with Alain Levy, Mr. Ames's former boss at Polygram Records who became chief executive of EMI Music two years ago, several friends of his said. Meanwhile, Mr. Ames's efforts to merge Warner Music with BMG faltered, in part because Richard D. Parsons, the chairman of Time Warner, distrusts Gunter Thielen, the chairman of BMG's parent company, Bertelsmann. They tangled when a separate deal between their companies went wrong a few months ago.

''Roger is sad,'' said his Chris Blackwell, chief executive of Palm Pictures and founder of Island Records, who previously worked with Mr. Ames at Polygram. ''I think he wished that people at the top felt more enthusiastic about the business rather than wanting to get rid of it. He felt that to do a merger was the way to go forward, and I think he felt that the one to go forward with was BMG. He wouldn't be so keen to see the EMI merger happen because that would put him back in a relationship with Levy.''

Mr. Ames declined to comment. People who work with him said he preferred the BMG deal not just because of his feelings toward Mr. Levy but because he thinks BMG offers a better roster of artists and a better chance for antitrust approval. But these people also say Mr. Ames is still cooperating with Mr. Parsons on the EMI deal while quietly suggesting alternatives. Last week, Mr. Ames's colleagues said, he quoted a recent hit by the pop singer Dido to describe his position: ''I will go down with this ship. And I won't put my hands up and surrender. There will be no white flag above my door.''

Since Mr. Ames took over Warner Music three years ago, he has drastically cut costs while raising its United States market share to second from fourth among the five major music companies. And he has earned the admiration of musicians and managers for defending their interests. ''Of the C.E.O.'s of the five major music companies, I think he is the most artist-friendly of them all,'' said Irving Azoff, a prominent talent manager whose clients include the Eagles, Jewel and Christina Aguilera. ''If there is a merger with EMI and Roger leaves the company, they would have a lot of work to do in the artist relations area.''

More recently, Mr. Ames has played a central conciliatory role in the industry's efforts to conquer online piracy. Last year, he blocked a music industry trade group from moving more quickly to sue Internet file sharers, arguing that the industry needed to present an appealing online alterative first. Then he was instrumental in helping Steven P. Jobs of Apple Computer win the support of music companies and performers to start his online music store, iTunes.

In an interview last week, Mr. Parsons of Time Warner acknowledged that Mr. Ames was in a delicate situation.

''I would say that he is in a complex and somewhat difficult position in that Roger knows as well as anybody -- in fact, better than most -- that the whole music industry is in urgent need for restructuring and consolidation, not just for our balance sheet but because that is what the industry needs,'' Mr. Parsons said. ''We have more infrastructure around the world than we have demand.''